By Sara QuamAfter two years of no electric rate increases, Luverne customers will see three years of 10 percent increases, starting in 2006.The Luverne City Council reviewed the rate study Tuesday night and will likely pass the changes at its next meeting.The 10 percent change will amount to an average $7 per month increase for most residential customers, including the base and per kilowatt hour charges. Commercial customers will see their bills increase about $8. Large users may pay a few hundred more, but their monthly bills are as much as $2,200.The 10 percent rate increase is an average, but it varies slightly by rate class.Karen Weeden, a rate analyst from Missouri River Energy Services, presented the study to the council.Through reserves, the city has absorbed $236,000 of higher wholesale electric costs from its electricity producers in 2004 and 2005.Weeden said, "We are recommending the increase because it will allow you to continue to fund capital improvements and build reserves to a more adequate level."She said, "It’s a small increase to the customer, but it’s a big impact for the utility."The city gets most of its electricity from Western Area Power Administration, which produces electric power from dams. Lower water levels mean that power is costing more. The city also gets supplemental power from Missouri River Energy Services. (The city also paid MRES $5,500 to conduct the rate study after receiving bids.) MRES is experiencing higher costs of operations because of increased coal transportation costs and transmission costs.Weeden said, "The municipal power is getting hit from all sides during this study period."MRES is in litigation disputing the coal transportation charges that are affecting its rates. It had to pay $7 million more in transportation charges for coal last year.With all of the factors considered, Luverne’s cost of providing power is increasing 22 percent cumulatively from 2005 to 2009.Some assumed costs in coming years for the city electric department through 2009 are:Distribution system and transformers — $925,000Circuit replacement — $600,000 Automatic meter reading system — $515,000Electric production — $376,500Magnolia transmission line — $300,000Street lighting — $200,000The utility department earns money for the city that is transferred into other accounts. The general fund receives $30,000; capital equipment receives $15,000 and economic development receives $70,000.The electric utility is projected to lose $1 million through 2009 under the current rate structure.MRES recommends that cities have 62 percent of their operating revenues in reserves. That would be about $3.5 million. After the rate changes, Luverne will build reserves to about $3.1 million.In other electric utility news …The council discussed forming a separate dual fuel rate and incentive program.Part of the reason the city’s cost of purchasing electricity is escalating is because it buys power based on peak demand.Dual fuel systems could be installed by homeowners who would get a one-time rebate of 50 cents per square foot of main floor living space. Their kilowatt hour charge would be lower as well.Those customers would have an alternate heat source such as gas or propane that would automatically be used when electricity is interrupted to the home because the electric utility is nearing peak points. That would ultimately make electricity cheaper for all Luverne customers.While it is good for the city to sell electricity, the high peak times make the city’s costs increase.Electric utility supervisor Rick Hoftiezer said, "We’re getting to the point where our winter peak is going to be as high as the summer peak."By offering dual fuel rates and a one-time incentive, the city will be able to keep selling a lot of electricity but can control the peak times that make rates increase.Hoftiezer said, "We want to sell more electricity but we don’t want to sell ourselves into higher cost of electricity."Councilman Pat Baustian said he used a U.S. Department of Energy formula and figured one home at Luverne’s current rate would save $700 a year by switching to dual fuel.A new dual fuel furnace would cost about $1,500 to $3,000 according to some estimates.